* MSCI world index down 0.4 percent, off recent highs
* Kiwi hits one-year high after RBNZ leaves rates unchanged
* Oil takes a pause after rally, gold also eases
By Anirban Nag
LONDON, June 9 (Reuters) - A rally in global bond markets picked up on Thursday on waning expectations the Federal Reserve will raise rates soon, driving yields on safe-haven German Bunds to record lows, and putting pressure on shares of some of the world's biggest banks.
The dollar hit a five-week low against the yen JPY= , hurt by falling Treasury yields US10YT=RR with investors preferring the traditional safety of the Japanese currency and core government bonds like Bunds amid heightened political risks like this month's UK referendum on European Union membership.
German 10-year Bund yields hit a low of 0.034 percent DE10YT=RR , not far from negative territory in which $10 trillions worth of bonds globally already trade at. The 10-year Treasury yields US10YT=RR fell to their lowest level since February, while British 10-year gilt yields struck a record low.
Investors have almost priced out the chance of a rate increase at the Fed Reserve's June 14-15 policy review, and reduced the likelihood of a July rate hike to around 26 percent.
With worries about a possible British exit from the EU gathering, investors are uncertain whether the Fed will indeed raise rates in the summer.
"The dollar has generally been a safe haven, particularly against emerging market currencies. But it remains underperforming against the more traditional safe havens like the yen," said Alvin Tan, a strategist with Societe Generale (PA:SOGN).
European shares .STOXX fell for a second straight day dragged down by weakness in banking stocks. The STOXX 600 Bank sector index .SX7P , which has been the worst sectoral performer so far this year, was down 0.6 percent, with Deutsche Bank DBKGn.DE , BNP Paribas BNPP.PA and Barclays BARC.L lower on the day.
Profitability in the sector is being hurt by the European Central Bank's ultra low interest rates. The ECB imposes negative rates on excess cash that banks hoard with the central bank, a charge that eats into banks' earnings.
Earlier, Japan's Nikkei .N225 fell 1 percent, hurt by a stronger yen with financials and banking stocks leading the losses amid lower bond yields. All of which saw the MSCI world equity index .MIWD00000PUS , fall 0.4 percent to 1,691.84.
The index had scaled a six-month high on Wednesday, when Wall Street's benchmark S&P 500 .SPX was just shy of all time closing highs. On Thursday, they Wall Street futures pointed to a lower start. .N
In the currency market, the New Zealand dollar NZD=D4 was in the limelight, soaring to a one-year high after the nation's central bank kept rates steady as expected, even as some in the market had wagered on a cut.
On the other hand, the Bank of Korea unexpectedly cut its policy rate to a record low 1.25 percent amid weak inflation and stagnant exports. The BOK may also be looking to cushion the economy as the government drives a major overhaul of the struggling shipping and shipbuilding industries that could see large job losses. FALLS AFTER RALLY
The euro retreated from one-month peak of $1.1416 EUR= , hurt partly by falling German Bund yields and on uncertainty stemming from Britain's June 23 referendum on whether to leave the EU. A British exit is expected to hurt the euro zone economy which is struggling with subdued growth and inflation.
In commodities, U.S. crude oil CLc1 fell 0.7 percent to $50.85 a barrel after hitting a 11-month high of $51.67 a barrel. Brent crude LCOc1 rose to $52.86 a barrel, highest since Oct 2015, but was last trading lower at $52.07 a barrel.
Spot gold XAU= dropped after hitting a three-week high of $1,266.01 an ounce, while aluminium CMAL3 fell after climbing to a one-month high of $1,614.50 a tonne. Copper CMCU3 also fell 0.3 percent.
"I think gold is going to stay range bound until we see more confirmation. We need more confirmation from labour market data in the U.S. that we get in a month from now. The market wants to see at least two data points," said Dominic Schnider of UBS Wealth Management in Hong Kong.